that it is wrong to use the unemployment insurance system at any time to finance one of the parties to an industrial controversy and I am sure that there are members of the Chamber, including my own company, that feel that the provision in the present New York law is wrong and will make representations in an effort to get it corrected.

What we are saying is that, whether the standards are helpful to us or hurtful to us, we think that the battle should be fought out at the State front where they know their own problems and not settled from here.

Mr. GILBERT. Yes, I agree with you and I can understand that you might be opposed to unemployment insurance being paid to strikers, but, nevertheless, it is the principle that is involved.

Mr. HIBBARD. That is right, sir.

Mr. GILBERT. That the Federal Government should not get involved in this area.

Mr. HIBBARD. That is correct.

Mr. GILBERT. Thank you.

The CHAIRMAN. Mr. Utt?

Mr. UTT. Mr. Hibbard, I wanted to inquire with reference to the absolute veto power of the Department of Labor on immigration which appeared in the form ES 420 and now it is a different number. How did that come about that we assigned to the Department of Labor that veto power which still exists, and I have found many, many cases of arbitrary and capricious rulings that I think have been very harmful. Can you comment on that, or do you know the background of it?

Mr. HIBBARD. I am sorry to say that I am not able to make any contribution in this area. My work with the Chamber, and my personal work, has been pretty much specialized in the field of unemployment insurance benefits. I have run into contact with it personally but only in one case, so my reaction would be worthless.

Mr. UTT. Okay.

The CHAIRMAN. Mr. Watts?

Mr. WATTS. You stated that you didn't think that the wage base should be increased. Assume that it was increased. Of course that requires each State then to increase its wage base according to the law, is that right?

Mr. HIBBARD. That is right.

Mr. WATTS. And your idea is that there are some States that have sufficient funds now to tend to their unemployment insurance problems and that to raise the wage base might require those States to immediately review their rates, is that correct?

Mr. HIBBARD. If they could.

Mr. WATTS. If they could?

Mr. HIBBARD. In the practical circumstances of State legislation if the Federal Government has said to the States, you must raise your tax base, there is going to be considerable difficulty in selling the legislature on the proposition that the increase in revenue mandated by the Federal law should be nullified by state action.

Mr. WATTS. Well, I realize that problem. That is a legislative problem within each State. But if a State had all the money it needed or more than it needed it could reduce its rate, is that correct?

Mr. HIBBARD. It could do so. It also could solve the problem by perhaps more prodigal distribution of the funds.

Mr. WATTS. I don't follow that.

Mr. HIBBARD. Well, the increased revenue could be spent as well as avoided.

Mr. WATTS. You mean could be spent on administration?

Mr. HIBBARD. It could be spent on administration or on new types of benefits or on expanded benefits.

Mr. WATTS. But if the wage base was left where it is now and we merely raised the rates on the Federal share of the unemployment compensation, then the States would not have to do anything unless they felt the need to?

Mr. HIBBARD. That is correct. Furthermore, in that situation the States would not be under pressure; and the merits of increasing the tax base and the offsetting adjustments would be considered without some external force intervening in the situation. I think you would get a better solution of the problem.

Mr. WATTS. But if the wage base was increased and a State was getting all or more money than it needed in order not to have an excessive accumulation it would have to change its rate, would it not?

Mr. HIBBARD. In order to avoid an excessive accumulation they would have to change their rates, that is correct.

Mr. WATTS. And that is one of the bases why you feel we should not bother the base but work on the rates?

Mr. HIBBARD. That is correct, sir.

Mr. WATTS. Then if the States need an increase in rates they can enact it and we can enact an increase in rates on the Federal share without putting any State in a position where it had to do something unless it saw fit to?

Mr. HIBBARD. That is correct.

Mr. WATTS. And that could be done and then any State that didn't have any problem wouldn't have to do anything.

Mr. HIBBARD. That is correct.

Mr. WATTS. But if the base is raised, they would all have to do something or have an excessive accumulation of funds.

Mr. HIBBARD. That is exactly the point. Thank you.

Mr. WATTS. That is all, Mr. Chairman.

The CHAIRMAN. Any further questions?
Again, we thank you, Mr. Hibbard.

Mr. HIBBARD. Thank you.

The CHAIRMAN. Our next witness is Mr. Brockway.

Mr. Brockway, we will ask you to identify yourself for our record, please.

STATEMENT OF RICHARD C. BROCKWAY, NEW YORK, N.Y.

Mr. BROCKWAY. My name is Richard C. Brockway. I am formerly the Executive Director of the New York State Division of Employment. I am currently President of the National Health and Welfare Retirement Association, but I am not appearing before you today in that capacity and I do not speak on behalf of the members of that association, but, rather, from my more than 20 years of experience administering the New York law.

I have delivered a prepared statement to the committee and I would prefer to have that inserted in the record and to speak rather briefly on one or two of the major points that I would like to emphasize.

The CHAIRMAN. Without objection, your statement will be made a part of the record.

(The statement referred to follows:)

PREPARED STATEMENT OF RICHARD C. BROCKWAY

I am appearing today as a former Executive Director of the New York State Division of Employment in support of the administrations Amendments. The opinions I express are based on more than 20 years experience in the administration of an unemployment insurance system and do not represent those of the National Health and Welfare Retirement Association of which I am now President.

The inclusion of these additional standards in the Federal act is long overdue. There were always standards; the debate over the years has been about which standards were appropriate and necessary. No one ever seriously questioned the need to require fair hearings, efficient operation, merit systems for state employees, prompt payment and the like. Even the most vigorous opponents of standards never doubted the propriety of the standard which long has mandated that the only way a state tax rate could be lowered was via experience rating.

So the question before you is not whether federal standards as such are needed, but whether those contained in H.R. 12625 are. My own view is that those here proposed do not go far enough, and that they should establish minimum benefit amounts and duration, but for today I intend to comment only on those in the bill and specifically those extending coverage, increasing duration, and raising the taxable wage base.

The need for universal coverage of the total labor force has been obvious from the beginning. Assuming as we do, the need for protection against the hazard of unemployment, the man working in a small establishment has the same need as the worker in a large one; the farm hand the same need as the lumberjack; the maintenance man at the university the same as the superintendent of an apartment house. The only real question has been the administrative capacities of the employers and the state agencies to collect the taxes, keep the records, and handle the claims. That these tasks can be done by both employers and agencies has been clearly demonstrated by several states, including New York, as well as by OASDHI. The reason states have not acted without federal support is self-evident. Over the years I spent discussing these issues with other adminitrators, it almost always came down to the question of interstate competition in business development. In some cases special interests made it politically inexpedient to impose a tax on small business or agriculture, for example. On the other hand, the businesses already taxed usually supported extensions of coverage. That the need was present has been recognized not only by the action some states have already taken on their own initiative but also by the fact that 35 states have standby provisions on their books which say in effect, we'll match whatever coverage the Federal law does. This is a clear invitation, if not an appeal, to Congress to act. From my own long exposure to the economic and political realities of state government, I'm convinced that it is unreasonable to expect the kind of initiative that these problems call for. They need to be treated nationally. The state legislatures, by the adoption of standby laws, are asking for federal leadership.

The proposal to extend the duration of benefits at times of rising unemployment is a necessary recognition of a national responsibility for a national problem-using the mechanism of the existing State-Federal system. While it can be argued that certain limited kinds of unemployment are attributable to purely local economic conditions, as the numbers of the unemployed increase so does the national responsibility for the economic situation causing the increase. As we look more and more to federal governmental actions to contain inflation, to cool the economy, to manage the money market we also ask the government to assume responsibility for the results. An examination of those periods of high unemployment which have occurred over the life of the unemployment insurance system makes it crystal clear that they were not the result of local or even state-wide conditions. The end of a war, a national recession, a defense build-up, foreign aid programs, these are the kinds of situations which really jolt our labor market. When long-term unemployment appears likely it is the time to expand the unemployment insurance system's capacity.

The trigger device proposed in this bill provides the means and insures an adequate timely response in each state. I saw benefit duration extended in 1958, and it surely met a need. Its weaknesses then were that it was late and temporary; identified as an emergency action. A program such as now proposed built into the system as one of its integral parts can overcome these deficiencies. The section increasing the taxable wage base is needed not only to provide adequate financing of the administrative costs of the system, but makes it possible for states to more rationally face the problems of financing benefit costs. The present limit on the wage base. coupled with the requirement to use experience rating as the only means of adjusting tax income to fund requirements, has resulted in some unreasonably high costs for certain employers, unreasonably low for others.

I spent enough time and energy in this system to accept as a fact of life that there will be some form of experience rating or tax variation, no matter what the logic of the situation proves, but with the present limit on the wage base the system is out of all proportion. The presently inequitable sharing of the costs of unemployment flow as much form the limit on the base as from experience rating. The Department of Labor has demonstrated this fully in its presentation. I'd like only to add that some of the unreasonably high rates are responsive not only to the need to keep the fund solvent but to the lingering but out-dated theory that certain employers or industries "cause" unemployment. There is a false assumption that unemployment in such trades as apparel, construction, food processing, or logging is "created." But these industries react no differently to economic circumstances than anyone else. When there is no work to be done, no orders to be filled, men and women get laid-off in Wall Street, in automobile factories, in government offices, in stores, in steel mills-just as they do in apparel, construction, etc. Thus to argue that benefits should be financed by increasing the spread of taxes as between so-called "good" employers and the "bad" is to argue that there is really something that can be done to prevent a lay-off and that a variation in the unemployment insurance tax rate is sufficient incentive to bring it about.

Here too, the need for national leadership is supported by the number of states, some 27 I believe, which have passed standby legislation to meet the requirements of the federal act should it be changed.

Thank you.

The CHAIRMAN. You are recognized, sir.

Mr. BROCKWAY. Over the years the debate on unemployment insurance has had to do with who is responsibile to act, act with respect to coverage, act with respect to tax rates, act with respect to duration and the nature of benefits.

Generally, the decision has been to leave that responsibility in the hands of the States although everyone recognizes and has always recognized that unemployment as such grows out of a variety of situations, some local and many more national.

It seems to me that it is time for the adoption of at least the kind of standards with respect to coverage, duration, and eligibility, and the tax base that are provided in the Administration's bill. If there was any more dramatic way of supporting the need for Federal action and indicating a Federal responsibility it is contained in this morning's New York Times which speaks of an increase in the volume of unemployment and which is greeted as being the result of, in my view, the very proper Federal actions to cool the economy, to take the edge off inflation, to manage the money market.

So it seems to me that the sharing of responsibility on the part of the Federal Government is abundantly clear. For example, in the area of extended coverage, historically States have been slow to extend coverage. New York, I am glad to say, has been a leader in extending coverage to small employers and to other noncovered groups. Some of the historic arguments have been the administrative ca

pacity of either employers or the agencies to handle household workers, to handle agriculture, to handle employers of one or more. Many States have demonstrated, and the Old Age and Survivors Disability Health Insurance System has demonstrated that this is not an administrative problem either for the employers or for the State agencies. Indeed, I remember many, many States taking action to adopt standby provisions in their statutes which in effect said, "If the Federal Government covers this kind of employer so will we."

It seems to me this is an obvious and valid appeal on the part of the States to have some Federal action. The need for extended duration has been quite clear. There have been emergency actions in the past. I was involved in the administration of one of those emergency actions to extend duration and it was extremely effective, extremely valuable. Its problem was that it was a litle late and it was temporary, and it seems to me that we know enough about this system to build into it a way of extending duration when economic and unemployment conditions call for it.

I will not extend my remarks any further. They are covered fully in the statement, and if you have any questions I would be glad to answer them.

The CHAIRMAN. Are there any questions of Mr. Brockway?

If not, Mr. Brockway, we thank you, sir, for coming to the committee.

Mr. BROCKWAY. Thank you.

The CHAIRMAN. Mr. Kilbride. Mr. Kilbride, if you will identify yourself for the record, we will be glad to recognize you, sir.

STATEMENT OF R. T. KILBRIDE ON BEHALF OF THE AMERICAN RETAIL FEDERATION

Mr. KILBRIDE. Mr. Chairman and members of the Ways and Means Committee, I am R. T. Kilbride, Payroll and Excise Tax Manager, Montgomery Ward & Co., and appear here in behalf of the 28 national retail associations and 50 statewide associations of retailers comprising the Federal Retail Federation. Through its association membership the Federation represents approximately 800,000 retail establishments of all types and sizes.

The CHAIRMAN. We are glad to have you with us today. You are recognized, sir.

Mr. KILBRIDE. Thank you very much.

GENERAL STATEMENT

The Federation supports the need for constant review of our Federal-State system. We are glad that the Administration and the Department of Labor recognizes this. However, we feel that the Administration bill, H.R. 12625, is lacking in some respects and we would prefer a bill more nearly approaching the bill which was reported from this committee in 1966 (H.R. 15119), after very comprehensive and exhausting hearings and study in executive sessions. Our major objections to H.R. 12625 are listed below.

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